Commentary
Norway’s version of the Alaska Permanent Fund hit the $1 trillion mark this week.
That’s $1,000 billion, or about 16 times the $61.2 billion the state of Alaska is now sitting on. The Norwegians created their account in 1990. Deposits into the Alaska Permanent Fund began in 1977.
Cue the discussion about how Alaska, which is now suffering through the worst recession since the 1980s, would be better off if it was more like Norway. This idea has popped up so many times in recent years it has almost become a cliché.
Only months ago, the Alaska Dispatch News ran a story headlined “Norwegians and Icelanders let Alaskans in on the secrets to economic prosperity.”
Beneath that story, reporter Jeannette Lea Falsey wrote that Norwegian economist Morten Brugard had a plan that “might appeal to Alaskans all along the political spectrum: Efficient government and a strong social safety net are the keys to Norway’s economic prosperity.”
Oh, if it were only so simple.
Certainly Alaska’s government could be more efficient. But it’s unlikely there’s a government of which that can’t be said. Not to mention that government efficiency is a hard thing to score.
When it is scored, Norway ranks from third to 11th in a comparison of various indices pulled together by the Institute for Government, a United Kingdom think tank. The highest U.S. ranking is seventh.
“The disparities in performance highlight a key problem with these cross-national studies: they may see the job of government differently, use different variables, and even measure the same thing differently,” the Institute notes.
The U.S., the globe’s biggest economy, doesn’t even make the top-25 on the World Economic Forum’s Global Competitiveness Index, one of the indices the Institute references. Rwanda is seventh there, four countries higher than Norway. Canada is 15th.
Clearly there is more to economic success than “efficient government.” There are some indications a stronger social safety net can help somewhat , but the net clearly isn’t going to create economic success on its own.
Economic success is built on people wanting to succeed. It’s that simple, and it’s that Darwinian: adapt or perish.
Fundamental differences
The Norwegians largely get it. The Swedes and Finns probably even more so. Helsinki, the capital of Finland, sits at about the same latitude as Anchorage. It is the largest city north of 60 degrees latitude.
Helsinki is about as far south as one can go in Finland. There is no “Finnish Panhandle” hanging below the country for hundreds of miles. Helsinki sits within 450 miles of the Arctic Circle, and a third of the country is officially in the Arctic.
Anchorage, Alaska’s largest city, is only about 70 miles farther north, and only about 20 percent of the 49th state is actually in the Arctic. But the differences between Finland and Alaska are even more of an eye-opener than the differences between Norway and Alaska.
“Although it’s on the fringe of Europe geographically, Finland has for years been at the center of the continent’s tech industry,” Michael Kanellos writes at Cnet.
“The country gave birth to cell phone leader Nokia and has emerged as a place where multinationals like to recruit and erect labs. The government and local entrepreneurs are now moving into clean technology.”
And Anchorage, AK?
Well, with apologies to Mayor Ethan Berkowitz who is a guy who dreams big and likes to talk about the”quality of life,” Anchorage – and Alaska in general – is a place people come to visit in the summer and get the hell out in the winter because there are limited economic reasons to stay.
Go ahead. Take a drive around town. What do you see? A whole lot of hotels devoted to making money off the three short months of summer (now maybe four; thank you global warming) before the city shuts down.
Finland is headquarters for Suunto and Polar, two world leaders in the manufacture of wrist computers. Anchorage is home to a small number of cross-country skiers and fat-bike cyclists who wear those wrist computers.
Not just Finland
Finland and Norway, to a similar but lesser extent, are far north countries succeeding because they made a conscious choice to embrace the future. Alaska is economically struggling as it tries to cling to some sort of fairytale past.
What exists there is history. Economic survival lives in the present and the future.
Against this backdrop, Alaskans should be mightily thankful for the state’s oil because without it, there wouldn’t be much here. What Alaskans have done with the wealth of that oil up to his point is open to debate, though the picture isn’t as black and white as some of the Alaska government-bashers might like to make it.
You have to consider where the state of Alaska started. The George Parks Highway linking the two largest cities – Anchorage and Fairbanks – didn’t exist at the time of Statehood, and the Seward and Sterling highways connecting the state’s largest city to the Kenai Peninsula weren’t much more than goat trails.
There is now a pretty good road system connecting the 49th state’s largest communities. You can fly into the Ted Stevens International Airport, rent a car or motorhome, and go on an enjoyable, week-long driving tour of Alaska without being left with the feeling you spent a week in a blender.
Score one for Alaska tourism even if the road system was much improved mainly to meet the demands of Alaskans.
Other than this, though, the state with the motto “North to the Future” has pretty much been treading water while living on oil wealth for a couple of decades because a lot of Alaskans like it that way. They abhor change, and the oil money has allowed everyone to go on living as if the world would never change.
Unfortunately, the world always changes. The speed of change used to be measured in hundreds of thousands of centuries. It took early humans something like 500,000 years to discover fire. It would be about 100,000 years more before they built their first wooden huts; another 100,000 until they figured out the spear; about 250,000 before those early spear chuckers figured out rudimentary speech.
The latter occurred about 150,000 years ago, the archeologists calculate.
It would take another 145,000 years for people to develop the smarts to write things down. That was about 5,000 years ago. After writing began, the speed of change quickly accelerated and the scale of measure shrunk to tens of centuries: the Bronze Age 4,000 to 3,000 years ago; the Iron Age, 3,000 to 2,000 years ago; and into the ever shorter periods of the Babylonians and Persians, the Greeks and Romans, the Byzantines, the Arabs, the Crusaders and the Ottomans.
By the 1700s, the Industrial Revolution was beginning and the speed of change was rapidly accelerating. The Space Age would be upon humans within about 250 years, and then things would really take off.
The personal computer in 1975. The mobile phone in 1983. The worldwide web (www.) in 1991. And now the smartphone, which puts in the hands of almost anyone more computing power than the all the rooms full of computers working for the National Aeronautics and Space Administration (NASA) when the U.S. put a man on the moon in 1969.
All of this change created a lot of new businesses and killed a lot of old ones. Places that refused to adapt suffered. Some of them died. What was once the thriving industrial heart of America became the “Rust Belt.”
If Alaskans want an economic lesson, maybe they should look at what happened there. Clearly the Norwegians have.
Dangers of success
“Anita Krohn Traaseth is a child of oil: she was born in 1971, the year that it started to be pumped from the Ekofisk field in the North Sea,” writes John Gapper at Financial Times. “‘Look at my generation. We do not know what a national crisis is. We were raised with oil and wealth,’ says the chief executive of Innovation Norway, a development body. She gestures like a drug addict putting a needle into a vein.
“It is a problem of affluence, but a problem all the same. This week is Oslo Innovation Week, a gathering of technology start-ups, venture capitalists and Norwegian companies such as Statoil, the state-owned oil and gas company. The theme is omstilling, the name for Norway’s nascent shift to living without the energy industry that has brought it wealth and welfare for 45 years.”
The real differences between Norway and Alaska today is that the former was never as addicted to oil as the latter, and it appears far more willing to embrace change. Norway is growing its tech sector, pioneering the construction of lightweight, carbon-fiber ferries, and embracing what it calls the “blue revolution.”
After setting a record for sea food exports last year, the country is talking about growing its aquaculture production five-fold by 2050, which is not exactly good for Alaska which is locked into a system of wild salmon harvest that basically hasn’t changed in 60 years.
Where Norway aims for maximum efficiency in farming fish, Alaska strives for large-scale inefficiency in the wild harvest of fish. Any number of Alaska salmon runs today go under-utilized because of the lack of harvest gear that can distinguish between plentiful species and those that need protection from over harvest.
Salmon streams in the Matanuska-Susitna Valley north of Anchorage end up plugged with pink and chum salmon the anglers who support the tourist industry there don’t really want, but which commercial fisheries are unable to utilize without catching hundreds of thousands of the sockeye and coho salmon vital to the very same sport fishing businesses.
Meanwhile, the commercial and sport fishermen – who are often warring – readily join hands to oppose almost any kind of mining in the 49th state. Historically, salmon and minerals were Alaska’s economic mainstays.
They have faded in modern times. Salmon prices peaked in the 1980s and hit bottom in the early 2000s. They have crept upward since 2004 or so, but Alaska is now at the whim of markets dominated by farmed fish.
About 70 percent of the salmon in the market today are farmed. If the Norwegians meet that 2050 production goal (and never mind the equally competitive Chileans, Scots, and Kiwis) wild salmon will become a minor player – less than 10 percent of the market.
Fish are now a major Norwegian export. So, too, metals.
The Norwegian economy is already far more diversified than that of Alaska, but the Scandinavian country is still scrambling to diversify because of what it sees coming on the horizon.
Alaska’s future….
Oil long ago passed fish and minerals as the mainstay of the Alaska economy, and in the short-term, the future of the Alaska oil business looks sound despite today’s low oil prices. There has been plenty of new oil found on the North Slope.
The long-term is a different matter.
Others think that might be too optimistic.
“Last year EV sales grew by about 60 percent worldwide. That’s an interesting number, because it’s also roughly the annual growth rate that Tesla forecasts for sales through 2020, and it’s the same growth rate that helped the Ford Model T cruise past the horse and buggy in the 1910s,” writes Tom Randall at Bloomberg. “For comparison, solar panels are following a similar curve at around 50 percent growth each year, while LED light-bulb sales are soaring by about 140 percent each year.
“Yesterday, on the first episode of Bloomberg’s new animated series Sooner Than You Think, we calculated the effect of continued 60 percent growth. We found that electric vehicles could displace oil demand of 2 million barrels a day as early as 2023. That would create a glut of oil equivalent to what triggered the 2014 oil crisis.”
None of this bodes well for Alaska.
Enter Norway again: About 25 percent of the cars on the road there now are electric, and the country hopes to be near 100 percent by 2025. It’s running electric ferries, too.
All of which is ideal for Norway, which today gets about 96 percent of its electricity from clean, relatively cheap hydropower. The infrastructure for Norway’s hydropower is so well-developed that there is talk of how the nation could become the “green battery” for Europe.
“The idea behind a ‘green battery’ is that excess power from Europe’s growing network of solar arrays and wind farms could be sent to Norway to pump water up from lower reservoirs to higher reservoirs,” reports Phys.org. “Then, when Europe needs this power again, Norway just opens the tap and lets the water spin through its hydropower turbines.”
Similar combinations of wind, water, solar and even geothermal would appear physically possible in Alaska, but whether they are politically acceptable is another matter. A lot of Alaskans like the idea of the state as one big park. Consideration of a dam on the Kenai Peninsula’s Snow River died almost before it began because of public opposition even though it might have benefitted Kenai River salmon.
And, of course, Alaska lacks the electrical connection to a faraway grid that could make the 49th state the battery for anything. Norway in August completed installation of the first phase a subsea, high-voltage-direct current (HVDC) power cable linking it to Germany.
Some looking forward
Granted, not all Alaskans are entrenched in the idea of trying to preserve the state as a place fixed in historic time. There are those actively searching for new economic opportunities.
Bernie Karl, the owner of Chena Hot Springs Resort north of Fairbanks and a leader in the use of geothermal energy in Alaska, has been talking about Alaska carbon fiber production for years, and he claims to be making progress on mating carbon collection to hydrogen fuel.
“We’re going to build a Metrol plant on the North Slope, carbon fiber plant on the North Slope,” he told the 12th Annual Renewable Energy Fair in Chena last month KTVA.com reported. “We’re talking about creating thousands of jobs, and hundreds of thousands of jobs in the world — all from Alaska, all this material is coming from Alaska.”
Metrol is a fuel that can be made from natural gas. Basically, the process strips the hydrogen out of methane (CH4) and saves the carbon for the production of carbon fiber.
Carbon fiber, many believe, is destined to be the steel of the future. Stronger and yet lighter than steel, it is already a dominant material in the production of state-of-the-art aircraft and top-end bicycles, and it is making inroads in all sorts of other industries.
The Ford Motor Company and DowAksa in 2015 signed an agreement to begin developing system for the high-volume manufacture of auto parts, saying that carbon fiber is a “material poised to play a significant role in the drive to make vehicles lighter for greater fuel efficiency, performance and capability.”
DowAksa is a partnership of the Dow Chemical Company in the U.S. and Turkey’s Aksa Akrilik Kimya Sanayii A.Ş. Turkey was one of the early leaders in the manufacture of carbon-fiber composites.
The only thing holding carbon-fiber back is high cost, but costs are expected to come down as production goes up. Karl, who dreams big, envisions one day shipping produce from his geothermal powered greenhouses north of Fairbanks to the rest of the state using hydrogen-powered dirigibles made out of carbon fiber.
This Wally Hickel-esque idea might not be as far-fetched as it sounds, and it is certainly looking forward, not back.
“We should all be part of Bernie’s crazy talk,” Sen. Lisa Murkowski, R-Alaska, was reported to have said at his energy fair.
“‘Boy, do I wish I’d paid more attention in chemistry when I was in high school in Valdez, but I’m catching up,'” Gov. Bill Walker added, KTVA reported. “I’m not saying I completely understand it, but I love the passion.”
Walker, however, continues to back a $45 billion to $65 billion gas pipeline from the North Slope to tidewater to produce liquified natural gas (LNG) to try to sell in a global market already oversupplied with LNG. The state took over leadership of that project after the major oil companies working in Alaska said it was time to throttle back until markets improve.
That does not bode well for Walker’s plan to boost the state economy by building a gas pipeline, and even the governor is starting to admit maybe it’s time to time to bury that pipe dream.
All of which would seem to leave Alaska approaching the point where it truly has to start to change with a look to the future to find ways to diversify its economy, or it has to scale back the state’s economy and go largely seasonal.
Former state economist Gregg Erickson, now a resident of Oregon, years ago suggested the traditional Alaska industries – tourism, fisheries, maybe a little mining – could still support a state the size of Alaska before-oil. There were about 350,000 people resident in Alaska then.
They represented a population about the size of the Santa Ana, Calif., of today. Downsizing would require some significant shrinkage. The Anchorage Metropolitan Area alone is now estimated to be home to about 400,000 people. Forget about the rest of the state.
But there are some things to be said for downsizing. If the Alaska population shrunk to about half of what it is today, for instance, the Permanent Fund Dividend paid those still living here would double, and Alaska would remain a great place to visit in the summer.
The potential for growing tourism in Alaska is near limitless. And it’s possible that if the state population shrunk back to pre-oil days, Alaskans would appreciate tourists more instead of dissing them as people who plug the state’s highways, crowd the state’s best fishing holes and generally just get in the way.
And in the latter regard, Alaskans should probably be happy Alaska isn’t Norway – a country less than one-fourth the size of the 49th state that attracts three times as many tourists.
Being Norway comes with both upsides and downsides.
Norway is chasing the production of carbon fiber and experimenting with it as the steel of the future. TK
Alaska is trying to browbeat the globe’s biggest private petroleum companies into helping build a pipeline to haul Alaska North Slope natural gas – a prime feedstock for carbon fiber – to tidewater so it can be liquified and shipped to China or Korea.
This the economic dream of Alaska Gov. Bill Walker. With state revenues crashing because of the global decline in the price of crude oil (the tax on which pays for most of state government in Alaska), Walker started spending millions on planners and gas salesman for project with low odds for success.
There is no accounting his spending benefited China, Korea and Japan, but those are the places to which Walker trekked off with his entourage to spend money on foreign hotels, food, drinks and who knows what else.
When Norway was hit with an oil-sparked recession similar to Alaskans, prime minister Erna Solberg started her own stimulus spending program.